Banks in Asia mostly dodged the ravages of the subprime mortgage meltdown but now must contend with depressed markets and a darkening economic picture resulting from the financial crisis plaguing the West. PDF
By Tony Munroe and Saeed Azhar - Reuters 29 September 2008
HONG KONG: Banks in Asia mostly dodged the ravages of the subprime mortgage meltdown but now must contend with depressed markets and a darkening economic picture resulting from the financial crisis plaguing the West.
Earnings for many lenders in the region will come under pressure as loan growth slows, asset quality deteriorates and the cost of credit increases as interest rates rise. Lenders that generated a big part of their profits from trading activity could also suffer.
“Anyone who has been growing faster prior to an economic downturn is going to be most exposed,” said Peter Tebbutt, senior director at Fitch Ratings.
Still, banks in Asia managed to stay away from the aggressive mortgage lending that brought down Washington Mutual last week, in what was the largest U.S. bank failure ever. Nor did they binge on collateralized debt obligations, or CDOs, the mortgage-linked securities that have gone sour.
Most Asian banks are in strong shape, at least for now, and bigger players are poised to take advantage of weakness elsewhere to make acquisitions and gain market share.
“The situation in Asia is completely different,” said Elan Cohen, who is based in Singapore and advises clients of JPMorgan Private Bank. “Banks in Asia are generally very well capitalized, they have stringent loan underwriting and they haven’t been plagued by the downturn in housing markets.”
In a sign of Asia’s relative strength, the top Japanese lender, Mitsubishi UFJ Financial Group, agreed last week to pay as much as $8.5 billion for a stake of as much as 20 percent in Morgan Stanley, a Wall Street giant.
The main risk to Asia is mounting economic gloom. This month, Merrill Lynch cited slowing exports in reducing its growth forecast for Asia outside of Japan for 2008 to 7.7 percent from 8 percent. Merrill’s revised target for 2009 is 7.3 percent, down from 7.8 percent.
Lenders in countries that had rapid loan growth, like Australia, India and South Korea, are most vulnerable to a slowdown, analysts said.
Despite the current health of Asian banks, markets are jittery. Last week, thousands of depositors rushed to withdraw savings from Bank of East Asia branches after an unfounded rumor questioned the bank’s stability.
One upside for healthy banks in Asia is the opportunity to increase market share. In addition to acquisition opportunities, the downturn elsewhere means strong Asian banks can expand their share of global lending.
“What it starts to do is it gives pricing power to banks in Asia,” said Sunil Garg, banking analyst at JPMorgan Chase in Hong Kong.
Morgan Stanley said in a report this month the banks that are most leveraged to a bull market, and thus exposed to a downturn, include the Indian banks Icici, Axis and State Bank of India, as well as Bank of East Asia, based in Hong Kong, and DBS Group Holdings, which is based in Singapore.
Morgan Stanley wrote that those least exposed to a downturn include Hang Seng Bank in Hong Kong; China’s top state lenders - Industrial & Commercial Bank of China, Bank of China and China Construction Bank; and Indonesian lenders including Bank Mandiri.
In Australia, National Australia Bank, and the Australia & New Zealand Banking Group are considered most vulnerable, analysts said; NAB because of its structured debt and British holdings, and ANZ for its exposure to commercial lending and to the slowing New Zealand economy.
TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
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By Tony Munroe and Saeed Azhar - Reuters
29 September 2008
HONG KONG: Banks in Asia mostly dodged the ravages of the subprime mortgage meltdown but now must contend with depressed markets and a darkening economic picture resulting from the financial crisis plaguing the West.
Earnings for many lenders in the region will come under pressure as loan growth slows, asset quality deteriorates and the cost of credit increases as interest rates rise. Lenders that generated a big part of their profits from trading activity could also suffer.
“Anyone who has been growing faster prior to an economic downturn is going to be most exposed,” said Peter Tebbutt, senior director at Fitch Ratings.
Still, banks in Asia managed to stay away from the aggressive mortgage lending that brought down Washington Mutual last week, in what was the largest U.S. bank failure ever. Nor did they binge on collateralized debt obligations, or CDOs, the mortgage-linked securities that have gone sour.
Most Asian banks are in strong shape, at least for now, and bigger players are poised to take advantage of weakness elsewhere to make acquisitions and gain market share.
“The situation in Asia is completely different,” said Elan Cohen, who is based in Singapore and advises clients of JPMorgan Private Bank. “Banks in Asia are generally very well capitalized, they have stringent loan underwriting and they haven’t been plagued by the downturn in housing markets.”
In a sign of Asia’s relative strength, the top Japanese lender, Mitsubishi UFJ Financial Group, agreed last week to pay as much as $8.5 billion for a stake of as much as 20 percent in Morgan Stanley, a Wall Street giant.
The main risk to Asia is mounting economic gloom. This month, Merrill Lynch cited slowing exports in reducing its growth forecast for Asia outside of Japan for 2008 to 7.7 percent from 8 percent. Merrill’s revised target for 2009 is 7.3 percent, down from 7.8 percent.
Lenders in countries that had rapid loan growth, like Australia, India and South Korea, are most vulnerable to a slowdown, analysts said.
Despite the current health of Asian banks, markets are jittery. Last week, thousands of depositors rushed to withdraw savings from Bank of East Asia branches after an unfounded rumor questioned the bank’s stability.
One upside for healthy banks in Asia is the opportunity to increase market share. In addition to acquisition opportunities, the downturn elsewhere means strong Asian banks can expand their share of global lending.
“What it starts to do is it gives pricing power to banks in Asia,” said Sunil Garg, banking analyst at JPMorgan Chase in Hong Kong.
Morgan Stanley said in a report this month the banks that are most leveraged to a bull market, and thus exposed to a downturn, include the Indian banks Icici, Axis and State Bank of India, as well as Bank of East Asia, based in Hong Kong, and DBS Group Holdings, which is based in Singapore.
Morgan Stanley wrote that those least exposed to a downturn include Hang Seng Bank in Hong Kong; China’s top state lenders - Industrial & Commercial Bank of China, Bank of China and China Construction Bank; and Indonesian lenders including Bank Mandiri.
In Australia, National Australia Bank, and the Australia & New Zealand Banking Group are considered most vulnerable, analysts said; NAB because of its structured debt and British holdings, and ANZ for its exposure to commercial lending and to the slowing New Zealand economy.
Saeed Azhar reported from Singapore.